The Demand For

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On July 28, 2005, members of the U.S. House of Representatives were debating a new U.S. energy policy. This policy, the Energy Policy Act of 2005, would be passed by the U.S. Congress the next day and signed into law 10 days later. The debate on July 28, however, raised some interesting, if not alarming, questions about the future of U.S. energy. The chairman of the House Committee on Energy and Commerce, Congressman Joe Barton, remarked, "Here is the fundamental problem we face on our mobile energy sources. We consume 21 million barrels of oil every day in this country, and we only produce eight. You subtract the eight out of 21 and you get 13. So, we are importing about 13 million barrels of oil a day. On our best day, the United States of America did not produce more than 10 million barrels of oil a day—on our best day. There is nothing we can do that is going to generate another 13 million barrels of oil produced in the confines of the United States of America. It cannot be done."1

In his concern that the United States does not have the resources to keep up with its energy demands, Congressman Barton was not alone; nor was he unsupported by national energy data. According to EIA statistics, each person in the United States used an average of 337 million Btu of energy in 2005. (A Btu is a British thermal unit, a measurement of energy that is gauged on the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.) This level of energy usage equates to about two times the energy per capita of people living in Japan and Europe, and 10 times that of the average world citizen.2 In the meantime, growth in U.S. energy consumption is projected only to increase, outpacing U.S. energy production over the next 25 years.

Yet the overwhelming concern, as Congressman Barton observed, is not that the United States will not be able to meet all of its energy demands but that it will not be able to keep up with its demand for oil, its primary source of energy for more than a half-century. Energy is consumed in four broad categories: residential, commercial, industrial, and transportation. According to the EIA, the transportation sector accounted for 28 percent of energy usage in the United States in 2005. In addition, almost 100 percent of all transportation—whether by land, sea, or air—was fueled by oil. Of all the ways of getting from one place to another (electric railways, tramways, diesel railways, buses, trucks, and individual cars), people in the United States overwhelmingly favor the least energy-efficient form of transportation: individual cars, powered by gasoline. During 2005, motor gasoline accounted for 44 percent of all the oil consumed each day in the United States. According to David Garman, U.S. under secretary for energy, science, and environment, "The most urgent need is to address our transportation sector, which consumes two-thirds of all U.S. oil and is still growing. Petroleum imports already supply more than 57 percent of U.S. domestic needs, and those imports are projected to increase to more than 68 percent by 2025 under a business-as-usual scenario."3

Oil Imports

Oil's status as the primary U.S. energy source has been firmly established since at least the mid-1900s, when decades of oil discoveries and a booming transportation sector greatly increased the nation's reliance on gasoline. Today the United States consumes more oil than any other region in the world. EIA data for early 2007 reported a U.S. demand of 22 million barrels of petroleum per day in February, and U.S. crude oil production is now at a 50-year low.4

In terms of oil production, the United States' "best day," as Barton referred to it, came and went in 1970. That year U.S. production of crude oil reached 9.4 million barrels a day—the highest level of oil production ever achieved in the nation. In 1970 the United States produced about 3.1 billions of barrels of oil annually. Since then oil production in the lower 48 U.S. states has been declining, according to the EIA. Quantities of oil produced in the United States in late 2006 were about 50 percent below 1970 quantities.5 In 1956 a renowned U.S. geophysicist named M. King Hubbert calculated that U.S. oil production would reach its peak in the 1970s and decline thereafter, basing this projection on his conclusion that oil production rises and falls according to a bell curve.6 Needless to say, his projection regarding U.S. peak oil production turned out to be accurate.

The United States produced sufficient quantities of oil to meet its oil demands until about 50 years ago. During World War II there were even adequate supplies of U.S. oil for the country's operations both home and abroad. Around this time, however, American habits, especially in relation to transportation, began to require large amounts of oil, and consumption soon began to outpace production. To meet increased oil demand, the nation started importing more energy in the 1950s and has relied steadily on imports since then. In the early 1990s the United States for the first time imported more oil and refined oil products than it produced, and greater quantities of imports have been added each year as U.S. demand for petroleum grows and domestic production declines. In 2005, according to EIA data, 30 percent of all energy consumed in the United States was imported from other countries, and the EIA projected that the United States would import about 17.7 million barrels of oil each day in 2030—about 61 percent of total U.S. oil demand.7

Oil Production in the United States

Part of the predicament, as many see it, is that there do not appear to be any major U.S. oil discoveries forthcoming; nor do there appear to be untapped fields capable of producing enough oil to make a substantial impact on U.S. oil demand. Even the Arctic National Wildlife Refuge (ANWR), a 19-million-acre tract of federally protected land near an oil-rich site in Alaska and the center of a controversial oil-drilling proposal from the administration of the U.S. president George W. Bush, is estimated to be capable of meeting U.S. petroleum demands for only six months to, at the most, several years, according to the U.S. Geological Survey (USGS).8

Despite improvements in the technologies used to find oil, oil discoveries have steadily declined over the past 50 years. U.S. "oil rushes" seem to be phenomena of the past, confined to the first half of the 1900s. These flurries of U.S. oil exploration and production followed discoveries such as the 1901 Spindletop gusher. One of the last major examples of an incident like this occurred in the 1930s, when a significant source of oil was discovered in East Texas. Columbus Marion ("Dad") Joiner, convinced that land near Tyler, Texas, held oil, leased the land so that he could drill it for oil. On October 5, 1930, beneath 140,000 acres of land, Joiner struck possibly the largest pool of oil ever found in the United States. An oil entrepreneur named H. L. Hunt bought Joiner's leases and sold them to oil companies, and the land eventually yielded 4 billion barrels of oil. Even with such a massive discovery of oil domestically, the United States in the 1930s was already branching out into other countries to obtain the greatly coveted energy resource. In the 1930s Chevron, Texaco, Exxon, and Mobil bought the rights to extensive oil fields in Saudi Arabia—today one of the top three suppliers of crude oil to the United States.

Since the 1930s the United States has seen only a modest overall increase in the amount of its proven oil reserves, the quantities of oil that can actually be recovered under existing economic conditions. There were 18.5 billion barrels of proven oil reserves in 1939 and 21.7 billion barrels in 2005, a difference of only 3.2 billion barrels in 65 years. Some research indicates that U.S. oil discoveries actually peaked in the 1930s, and many researchers point to U.S. proven oil reserves today as a direct measure of U.S. ability to meet future oil demands. Historically estimates of what is left in oil fields—that is, the reserves—become more precise as the end of oil fields' production draws near. Most of the United States' 500,000 or so producing oil wells are generally producing only a few barrels of oil each day. Therefore, researchers have concluded that estimates of proven U.S. oil reserves can be considered quite accurate.

There were 21.7 billion barrels of total proven oil reserves in the United States at the end of 2005, according to the EIA.9 This represented only about 3 percent of the total reserves in the world. More than 80 percent of these U.S. oil reserves were located in four states where oil production has been declining in recent years, including Texas, where 22 percent of total U.S. oil reserves are concentrated. In fact, U.S. oil reserves figures have, as have oil production figures, declined overall since 1970, when U.S. proven oil reserves peaked at 39 billion barrels, bolstered by a reserve of oil tapped in the North Slope region of Alaska. The 21.7 billion barrels of proven oil reserves in the United States in 2005 represent a 44 percent decline in reserves since 1970. Since 1990 U.S. proven oil reserves have already diminished more than 17 percent, with the largest single-year decline, 1.6 billion barrels, in 1991.

Global Oil Reserves

Even so, the likelihood of an oil shortage would not be such a cause for concern for the United States were there an infinity of oil supplies to import from other countries. Yet research has generated global oil reserves figures that are also disconcerting to many people. On a worldwide scale, about 5 billion barrels of new oil reserves were discovered in 2005, while 30 billion barrels of oil were consumed worldwide, according to the International Energy Agency (IEA). In June 2006 the BP Statistical Review of World Energy reported a worldwide oil reserves-to-production (R/P) ratio of 40.6 for 2005.10 R/P ratios, calculated by dividing the proven oil reserves in the ground at the end of the current year by total oil production in that same year, provide a measure of the number of years that oil reserves would last if production were to continue at the level of the current year. At 2005 production rates, worldwide oil supplies would run out in about 40 years, by BP estimates.

M. King Hubbert used his bell curve model to calculate not only when U.S. oil production would peak but also when worldwide oil production would peak. He concluded that the world's oil production would reach its peak around the year 2000.11 A former colleague of Hubbert, the petroleum geologist and Princeton University professor emeritus Kenneth S. Deffeyes, has stated that, on the basis of Hubbert's calculations, the world's oil production either is peaking now or has already peaked.12 Colin J. Campbell, a British geologist, independent oil-industry consultant, and member of the American Association of Petroleum Geologists (AAPG) since 1959, joins Hubbert and Deffeyes in the opinion that world oil production will reach its peak in the first decade of the 21st century. Campbell has suggested that grave economic and political consequences will result as nations around the world experience energy scarcity and sustained increases in the price of oil.13

The Debate over Oil Demand and Supply

However, oil reserves as a measure of the ability to meet current oil demands have frequently been the subject of debate. The EIA, for example, projects that world oil production will peak as late as 2037, assuming an average growth in demand of 2 percent per year based on previous years' data.14 Some researchers say that the industry experts who cite ever-improving recovery technology for finding oil as a promise of greater reserves should feel validated by a 2000 USGS report stating that the world has 20 percent more oil waiting to be discovered than originally estimated in 1994.15 And then there are some commentators who dismiss "peak oil" theories altogether. Mark Jaccard, a British author and sustainable energy expert, was a recognized supporter of peak oil calculations for 20 years. In 2005, however, Jaccard surprised the energy industry by concluding in his book Sustainable Fossil Fuels: The Unusual Suspect in the Quest for Clean and Enduring Energy that there is enough oil, gas, and coal to sustain the world at least for another 500 years. He acknowledged that oil and gas are in limited supply but pointed to energy efficiency technologies that may possibly extend fossil fuels' availability indefinitely. He argued that modifying the way we use fossil fuels is an essential part of any plan to achieve energy sustainability. He especially highlighted coal's potential for generating hydrogen, a clean fuel, as well as carbon dioxide.16

M. A. Adelman was another detractor from peak oil theories. A professor of economics emeritus at the Massachusetts Institute of Technology (MIT) and an oil economics authority, Adelman contended that the world is not running out of oil. He argued that calculations of peak oil production based on the world's proven oil reserves are flawed because oil reserves rise and fall in a continuous cycle of replenishment and depletion.17

Other experts point to improvements in oil exploration, extraction, and production techniques that over the years have led to more extensive recovery of oil in the United States and elsewhere. They argue that there is no reason to think that further improvements and, subsequently, greater reserves of oil are not in the United States' future. For example, when the U.S. oil industry was in its infancy, around the year 1900, oil companies routinely relied on surface geology, or a basic evaluation of land formations, to find likely spots for oil. Visible features of the Earth's surface, such as seeping oil or natural gas, craters caused by escaping gas, or the inverted cup-shaped hills that are characteristic of anticlines, provided straightforward evidence of oil reservoirs. By 1925, however, geologists were routinely using seismic exploration, sending high-intensity sound waves into earth or water (at first, mainly through the use of explosives) and then interpreting the resulting echoes for evidence of the presence of oil reservoirs. Today, however, most oil exploration relies on highly sophisticated technology: hydraulic surveying, three-dimensional digital imaging, undersea seismic exploration using compressed air, and more. Similarly, drilling techniques have undergone continuous improvements since U.S. oil production began: from rotary drilling to offshore drilling barges, from deepwater drill ships to semisubmersible oil-drilling rigs, and, more recently, to horizontal drilling. Many commentators suggest that there are virtually no areas where oil exploration cannot be successfully carried out, presuming geological studies have indicated a good possibility of finding oil.

In the 1970s Peter Odell, an energy consultant and professor of international energy studies at Erasmus University, Rotterdam, the Netherlands, challenged the view that worldwide oil supplies were waning, citing unexpected increases in proven oil reserves during prior years, new technologies for recovering oil, and oil price increases that encouraged oil companies to seek out more oil than they did when oil was less expensive. He argued that the oil industry would continue to expand into the mid-21st century.18 As has Odell, Michael C. Lynch, a prominent oil economist at the Massachusetts Institute of Technology, has countered the claims that the world has reached or is reaching peak oil production. He has asserted that these claims underestimate the oil-producing potential of nations outside OPEC as well as the technological changes that can result in better oil recovery.19

Nevertheless, the notion that demand for oil will continue to rise over the next 20 years is widely accepted, and it is a known fact that oil and other hydrocarbon fuels are nonrenewable resources, by nature limited in supply. Many researchers agree that the world has used such resources too aggressively. Some experts claim that the world has burned approximately one-half of all the recoverable oil that was created over a period of 100 million years.20

U.S. Energy Crises

How has the United States addressed this issue of dwindling supplies of its primary energy resources? The U.S. strategy for responding to the problem has had two dimensions: (1) finding short-term solutions to immediate energy crises and (2) making long-term provisions for the projected decline in primary energy resource supplies.

Some commentators point out that in the United States it is the short-term solutions that have received the most emphasis, perhaps too much emphasis. This emphasis is due, in part, to energy crises that triggered knee-jerk reactions in the United States. Since the 1970s the United States has met with a number of immediate shortfalls in energy supply and/or sudden, sharp increases in the cost of energy resources—in other words, energy crises.

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